New powers to give greater insolvency protection to staff and small suppliers - Business Finance

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Big Ben in London
20 Mar

New powers to give greater insolvency protection to staff and small suppliers

The government has launched a consultation to improve the UK’s corporate governance framework to ensure the highest standards of behaviour in companies dealing with insolvency.

Despite most UK companies being run responsibly, a small number of recent corporate governance failures have raised concerns that company directors can unfairly shield themselves from the effects of insolvency and – in the worst cases – profit from business failures while workers and small suppliers lose out.

Following last year’s corporate governance reforms to increase boardroom accountability and transparency of big business, the government’s latest proposals will include:

  • clawing back money for creditors including workers and small suppliers by reversing inappropriate asset stripping of companies on the verge of insolvency
  • disqualifying and or holding directors personally liable when found to have sold a struggling company or subsidiary recklessly or knowing it would fail
  • giving the Insolvency Service new powers to investigate directors of dissolved companies
  • consideration of the legal and technical framework within which decisions are made on payment of dividends, and how it could be improved and made more transparent
  • strengthening the role and responsibilities of shareholders in stewarding the companies in which they have investments

Business Secretary Greg Clark said: “Britain has a good reputation internationally for being a dependable place to do business, based on required high standards. This framework has been regularly upgraded and in the light of some recent corporate failures I believe the lessons should be learned and applied.

“These reforms will give the regulatory authorities much stronger powers to come down hard on abuse and to make irresponsible directors bear the consequences of their actions.”

Payment issues will also be addressed in the consultation, a welcome move according to Federation of Small Businesses (FSB) National Chairman, Mike Cherry.

He said: After the commitment from the Chancellor to eliminate the UK’s late payments epidemic in his Spring Statement last Tuesday, it is pleasing to see the Business Secretary matching it with his own commitment to continue to reform corporate governance.

“At the very top of Government, we now see recognition of the scale and impact of poor payment practice by too many larger businesses and that more needs to be done.  These practices place small firms under financial pressure and at risk of closure, with eight out of ten small businesses now reporting being paid late.  This holds back economic growth right across the UK.

“The increased focus on the UK’s poor payment culture is due to positive measures like the Duty To Report on payment practices, the appointment of the Small Business Commissioner, and the tightening of corporate governance rules announced today.  However, it will take more to see a fundamental shift in culture and the total outstanding invoices paid late by the UK’s biggest businesses.

“We want to see cross-party support for stronger rules that create a whole-board approach to late payments.  This should be done by giving a non-executive Director on Boards a specific responsibility for good supply chain practice including overseeing the firm’s statutory duty to report on payment practices.”